'Time ripe for fiscal consolidation'

Prime Minister Manmohan Singh today indicated the time was ripe for the country’s economic and financial policy makers to move towards fiscal consolidation.

“I think we have moved to a stage that we are cautiously working towards financial consolidation. Monetary policy measures have been taken by the Reserve Bank and, gradually, our fiscal system will also move in the direction of consolidation,” he said on board his special aircraft on the way back from the G20 Summit in Seoul.

Fiscal consolidation is a reduction in the gap between the government’s total expenditure and revenue. It involves raising revenue and cutting expenditure. It is generally understood to run opposite to fiscal stimulus, in which the government increases expenditure to shore up a sagging economy.

In response to a question whether the financial ministry’s increasing clout over the financial sector was a setback to regulatory reforms, Singh said there was no question of rolling back reforms.

“Our reforms are well-thought-of. They were in response to the needs of the time and our requirements will be the sole determinant of what type of reforms we wish to do. But we do want, I think, a reformed system, which is internationally accepted because that is the way in which an interdependent world can manage flows of capital from one country to the other.”

On the move to Basel III, he said there was no question of rushing into it. “If I remember it correctly, even the Basel draft has to be adopted by the year 2018-19. So, I think there is a fair amount of time available for us to decide what to do on our own.”